TaxTMI 
TaxTMI 
2026 (7) TMI 337
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.....w.s. 144C(13) r.w.s. 1448 of the Income tax Act, 1961 (the Act) in pursuance to the order of the Deputy Commissioner of Income-tax, Transfer Pricing. 1(1) (the learned Transfer Pricing Officer or the learned TPO), and the directions of the Hon'ble Dispute Resolution Panel-3. Mumbai (Hon'ble DRP or DRP), to the extent prejudicial to the Appellant is bad in law and is liable to be quashed. 2. That the draft order dated 29 September 2023 issued under section 144C(1) read with section 143(3) read with section 1448 of the Act by the Assessment Unit for AY 2020-21 is barred by Imitation and therefore, all consequent proceedings pursuant thereto, including the directions passed by the Hon'ble DRP and the final assessment order are all barred by limitation, void-ab-nitio, bad in law and liable to be quashed. 3. That the Document Identification Number allotted to the directions dated 22 June 2024 issued by The Hon'ble DRP cannot be authenticated on the e-portal of the Income-tax department, and therefore the directions issued are not in line with the Circular No. 19/2019 dated 14 August 2019 issued by the Central Board of Direct Taxes, thus rendering the d....
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....oup services, thereby, making an adjustment on an adhoc basis. 10. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in not undertaking any exercise to determine the arm's length price for payment of lumpsum license fee and availing of intra-group services by comparing it with an uncontrolled transaction, thereby, making an adjustment on an adhoc basis. TP Adjustment in respect payment of Trademark fee 11. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred, in making an adjustment of INR 18,79,69,131 to the transfer price of the Appellant in respect of the international transaction of payment of Trademark fee. 12. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred by disregarding comparable agreements from the automotive sector for benchmarking the trademark agreement entered by the Appellant, and erred by including agreements, which are not comparable from the automotive sector. 13. On the facts and in circumstances of the case and in law, the Hon'....
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....umstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred, in making an adjustment INR 70,88,23,430 to the transfer price of the Appellant in respect of international transaction pertaining to availing of certain services viz Production Development cost, Communication charges, Professional charges, Miscellaneous Expenses. 19. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO grossly erred in holding that no documentary evidence was submitted to justify the receipt of Intra-group services, without considering the evidence and submissions made by the Assessee demonstrating substantial and commercial benefits accruing to the Assessee. 20. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred by not appreciating the business model of the Appellant and rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method (TNMM) and arbitrarily applying Other Method to certain intra-group transactions. 21. On the facts and in circumstances of the case and in law, the Hon....
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....quirements of the leading original equipment manufactures (OEM's). The assessee is engaged into manufacturing as well as trading of drive and control equipment. For AY 2020-21, the assessee e-filed its return of income on 30.01.2021 declaring total income of Rs. 207,16,16,990/-. The case of the assessee was selected for scrutiny through CASS. Statutory notice(s) u/s. 143(2) and 142(1) of the Act along with questionnaire were accordingly issued and served upon the assessee calling for the details contained therein. 3.1 During the relevant AY 2020-21, the assessee entered into the following international transactions as per Form 3ECB : S. No. Nature of Transaction Amount as per 3CEB Segment 1 Import of raw materials and components 4,81,02,57,492 Manufacturing 2 Debit note against purchase of raw materials and components 16,63,05,228 Manufacturing 3 Purchase of traded goods 1,71,24,59,675 Trading 4 Purchase of property, plant and equipment 3,30,98,891 Manufacturing 5 Export of finished goods 18,03,14,761 Manufacturing 6 Sale of services 6,53,71,688 Manufacturing 7 Payment of Royalty 90,54,0....
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.... Ld. AO passed the draft assessment order u/s. 143(3) of the Act on 29.09.2023 determining the assessed income of the assessee at Rs. 328,13,87,493/- incorporating therein the above adjustments proposed by the Ld. TPO to the returned income of the assessee as stated below : Particulars Amount (Rs.) Total Income of the Appellant as per the return of income 20,76,16,990/- Income as computed u/s. 143(1)(a) 207,24,76,900/- TP adjustment under section 92CA of the Act 120,89,10,593/- Total Assessed Income under section 143(3) of the Act 32,81,37,493/- 4.2 The assessee filed its objections before the Ld. DRP on 30.10.2023 against the draft assessment order passed by the Ld. AO. The Ld. DRP vide its directions/order dated 22.06.2024 partially allowed certain grounds raised by the assessee. Pursuant to the directions of the Ld. DRP, the Ld. TPO passed the order giving effect thereto on 22.07.2024 by making the following adjustments : Sl. No. Particulars TP Adjustment (Rs.) 1 Trading segment NIL (as per directions of DRP) 2 Payment of Royalty 9,65,77,774 3 Trademark fee 18,79,69,131 4 Intra group se....
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....ce the application of Rule 10TA(j) and Rule 10TA(k) of the Income Tax Rules, 1962 (the "Rules") in computing profitability by the Ld. TPO/AO is unjustified and unwarranted. 7.3 He submitted that during the proceedings before the Ld. TPO, the assessee had filed detailed segmental accounts depicting the profitability earned from the trading segment. The assessee had followed a robust mechanism to prepare said segmental accounts wherein it had allocated the cost of materials and associated freight based on actual consumption and depreciation based on actuals. The common costs such as employee costs, travel costs, communication costs, selling and administration, etc. that are not directly allocable to specific segment are allocated on a reasonable basis such as, sales, material cost, production ratios, etc. The assessee had thus submitted the complete cost allocation keys before the Ld. TPO. Despite this, the Ld. TPO reworked the assessee's segmental information on the ground that the assessee failed to furnish the cost allocation keys and segmental accounts by applying the provisions of Rule 10TA(j) and 10TA(k) of the Rules and reallocated the cost based on the sales ratio. 7.4 ....
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....relevant to the AY 2020-21 under consideration. Even otherwise also presuming that Rule 10TA(j) and 10TA(k) of the Rules applies to the assessee, we notice that the Ld. TPO has not provided any rationale for such a measure nor given any explanation for rejecting a methodology/mechanism adopted by the assessee which is based on actuals and in those cases where it is not identifiable/allocable to each specific segment, the allocation has been done on a reasonable basis such as, sales, material cost, production ratios, etc. Admittedly, the assessee did not opt for Safe Harbour during FY 2019-20 and also submitted the complete cost allocation keys/methodology before the Ld. TPO which is reproduced by the Ld. TPO himself in his TP order (pages 553 to 560 of the appeal set refers). This clearly demonstrates that all the relevant details were filed by the assessee before the Ld. TPO and were available with him at the time of passing his order. Further from para 9.4 of the DRP order/direction, we find that the Ld. DRP has also held that the mention of Rules 10TA(j) and 10TA(k) in the PLI computation is to read down (pages 83 and 84 of the appeal set refers). 10.2 We find that in the cas....
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.... 96,026,852/- iii. Payment of professional charges Rs. 80,316,964/- iv. Miscellaneous expenses incurred Rs. 23,601,606/- 12.1 Referring to pages 598 to 603 and 299 to 317 of the appeal set, the Ld. AR submitted that before the Ld. TPO and DRP the assessee had submitted the relevant documentary evidences demonstrating substantial and commercial benefits accruing to the assessee by availing services from Bosch Group. The assessee had provided the details on the nature and benefits of the services and submitted sample invoices, intra company agreement, email communication including the need and benefits derived from such services. He further submitted that the assessee adopted TNMM for benchmarking the infra-group service charges and relied on the aggregation approach for establishing that payment of intra group charges are at ALP. However, the Ld. AO determined the ALP of intra group services at 'Nil' using 'Other Method' under Rule 10AB without bringing on record any comparable which is in violation of Rule 10AB. 12.2 Referring to pages 318 to 321 and pages 604 to 608 of the appeal set, the Ld. AR submitted that the impugned intra group service charges are al....
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....tra company agreement, various email communications demonstrating the need and benefits derived by the assessee from such services. The Ld. TPO, however, in disregard to the submissions of the assessee held that the assessee failed to demonstrate the benefits derived from the receipt of such services by the assessee and therefore determined the ALP of intra-group service fees at Nil applying 'Other Method' under Rule 10AB of the Rules. The Ld. DR demonstrated the receipt of services by the assessee before us too. It is further observed that while applying Rule 10AB, no comparable was brought on record in respect of the intra-group services and therefore, in our view, adoption of Other Method is not in accordance with the Rule 10AB and hence not sustainable in law. The assessee considered TNMM as the most appropriate method for benchmarking its international transaction including the service charges mentioned in para 12 above and applied the aggregation approach to establish that payments made towards intra-group services charges are also allocated at cost in the trading segment and accordingly benchmarked while applying TNMM under the trading segment. It is the submission of the Ld....
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....he Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific, and limited le. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained." 16. Now, coming to the adoption of 'Other Method' by ....
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....t compiled with the provisions of the Act read with the relevant Rule to determine the ALP of the international transaction by applying one of the methods prescribed under section 92C of the Act. 12. From perusal of the various judicial precedents (supra) cited by the Ld. AR, we find that this issue is no more res-integra. It is now a settled position in law that the determination of the ALP of the international transaction on an ad-hoc basis de hors section 92C of the Act by merely asserting that the 'Other Method' is applied cannot be sustained as held by various Courts and Tribunals. In the case of CIT v. M/s. Johnson & Johnson Ltd. (supra), the Hon'ble Jurisdictional Bombay High Court held as under: "4(d)... We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 108 of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know how has not been carried out as required under the Act. Furt....
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....e uncontrolled transaction is identified. Thereafter, the said price is adjusted to account for differences, if any and the said price is taken to be the Arm's Length Price. Thus, as per the said rule, for applying CUP method, the price charged for property transferred or services provided is required to be identified. However, in the present case, the TPO has not carried out any such exercise. Therefore, simply referring to CUP method without any reference to the actual uncontrolled transaction and the price charged therein clearly indicates that no CUP method is adopted by him. Under these circumstances, we agree with the contention of the Ld. Counsel for the assessee that no method has been adopted by the TPO for determining the ALP. The observations of the DRP that the TPO has adopted the Other method as the most appropriate method in our opinion is incorrect since there is no reference to any such method as the TPO has not specifically mentioned the Other method as the most appropriate method. Thus, the question that is to be answered is as to whether any adjustment of ALP is in accordance with law if no method has been adopted by the TPO for determination of the ALP. ....
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.... efficiency • To train the client's O & M personnel so that they take over O & M of the plant on completion of the contract period." 19. Based on the factual matrix and the legal position set out above, in our view, the adjustment made by the Ld. TPO and affirmed by the Ld. DRP in respect of intra-group service charges is not sustainable in law and therefore the impugned adjustment is hereby deleted and the TNMM applied by the assessee is upheld. The ground Nos. 18 to 22 raised by the assessee are accordingly allowed. Grounds relating payment of royalty/lumpsum license fee 20. The next issue i.e. ground Nos. 14 to 17 pertains to lumpsum license fees paid by the assessee to its AEs. The Ld. AR submitted that as per the terms of the agreement between the assessee and its AEs, the assessee does not undertake any functions or responsibilities in developing the technologies but merely utilises the same for its manufacturing activity. The assessee also does not assume any economically significant risks in relation to technology which is developed by the assessee. There is no arrangement of cost contribution between the AEs either in contractual from or in substa....
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....llowed. Grounds relating to payment of Trademark fee 23. Lastly, another grievance of the assessee pertains to adjustment of Rs. 18,79,69,131/- to the transfer price of the assessee in respect of the international transaction of payment of Trademark fee which is raised by way of ground Nos. 11, 12 and 13. Giving the factual background of the issue involved, the Ld. AR submitted that the Trademark fee is paid for the licensed use of the "Bosch" trademark and logo which are owned by Robert Bosch GmbH. Under a trademark license administered by Bosch Technology Licensing Administration GmbH, the assessee has been granted a non-exclusive, non-transferable right to use the Bosch trademark on its products, packaging and related marketing activities within the specified territory. 23.1 The Ld. AR submitted that the trademark fee forms part of the royalty payment made and benchmarked under the TNMM, however, the Ld. TPO has considered the same separately. 23.2 Referring to page 594 of the appeal set, the Ld. AR submitted that during the proceedings before him, the Ld. TPO directed the assessee to furnish comparables for benchmarking the payment of trademark fee. Accordingly, the....
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....(ITA No. 9482/DEL/2019), order dated 09.07.2024, the Ld. AR submitted that in the present case of the assessee, segregating the same transaction, wherein the trademark forms an integral part of the royalty and subjecting it to benchmarking again under the CUP method or any other method would amount to a double adjustment, which is impermissible under law. 24. The Ld. DR supported the order of the Ld. TPO/DRP. 25. We find some force in the arguments advanced by the Ld. AR that once the transaction has been benchmarked under TNMM, it cannot be separately benchmarked under CUP. We find that the Delhi Tribunal in the case of Samsung India Electronics Pvt. Ltd. (supra) held as under : "In the instant case, we have held that the data chosen by the TPO for CUP is wholly inappropriate. Secondly, the TPO has already accepted TNMM for the Manufacturing segment as a whole. There are numerous international transactions in this segment all these transactions like royalty, purchase of raw materials etc. have been aggregated under TNMM and benchmarked against independent third party comparables. In these circumstances, cherry-picking of one particular transaction like royalty and s....